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All 31 banks subject to the Federal Reserve's stress test this year remained above their minimum common equity tier 1 (CET1) capital requirements during a hypothetical recession, the regulator said on Wednesday.
The results showed that even though large banks would endure greater losses than 2023's test, they are well positioned to weather a severe recession, the central bank said.
"While the severity of this year's stress test is similar to last year's, the test resulted in higher losses because bank balance sheets are somewhat riskier and expenses are higher," said Fed Vice Chair of Supervision Michael S. Barr.
Under the hypothetical scenario, the banks test would have lost almost $685B. "Under stress, the aggregate CET1 capital ratio — which provides a cushion against losses — is projected to decline by 2.8 percentage points, from 12.7% to 9.9%. While this is a greater decline than last year's, it is within the range of recent stress tests," the central bank said in a statement.
The hypothetical recession assumes a 40% decline in commercial real estate prices, a substantial increase in office vacancies, and a 36% decline in house prices. The unemployment rate rose to 10% (from the current 4.0% level) in the scenario.
The projected minimum CET1 capital ratio for the severely adverse scenario ranged from 5.0% for BMO (NYSE:BMO) to 25.2% for Charles Schwab (NYSE:SCHW).
For the global systemically important banks, known as GSIBs: JPMorgan Chase's (NYSE:JPM) CET1 capital ratio was 12.5% compared with 15.0% in Q4 2023; Bank of America (NYSE:BAC) 9.1% vs. 11.8%; Citigroup (NYSE:C) 9.7% vs. 13.4%; Goldman Sachs (NYSE:GS) 8.5%, down from 14.4%; Morgan Stanley (NYSE:MS) 10.6% vs. 15.2%; and Wells Fargo (NYSE:WFC) 8.1%, down from 11.4% in Q4 2023.
Source: Federal Reserve.